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IMF APPROVES ARRANGEMENT FOR HONDURAS

 IMF APPROVES ARRANGEMENT FOR HONDURAS
 WASHINGTON, July 24 /PRNewswire/ -- The International Monetary


Fund has approved a three-year arrangement for the government of Honduras under the enhanced structural adjustment facility (ESAF)(A), authorizing loans of up to the equivalent of Special Drawing Rights (SDR) 40.7 million (about US$58.51 million) in support of the government's 1992-95 medium-term economic program. The first annual arrangement under the ESAF will be supported with loans of up to SDR 13.6 million (about US$19.55 million).
 Honduras is the first of the 11 newly ESAF-eligible countries to make use of the facility. The government's 1992-95 program, which the ESAF arrangement supports, is designed to continue its stabilization effort and to consolidate and deepen the structural reforms initiated in 1990. The program seeks to increase real GDP growth to 4.5 percent a year, reduce inflation to international levels and further strengthen the balance of payments to the point where exceptional financing will no longer be required after 1995.
 In 1990, the Honduran government adopted an economic program covering 1990 and 1991 to reduce financial imbalances and establish a macroeconomic framework conducive to sustained economic growth and balance of payments viability. These efforts were supported by an IMF stand-by credit of SDR 30.6 million (about US$43.99 million) approved in July 1990.
 As a result of the success of this program, economic growth improved markedly in 1991 and early 1992. At the same time, far- reaching changes in the structure of the economy were introduced. Honduras also reached agreement with its bilateral creditors in the Paris Club and reduced its arrears to commercial banks through debt conversions, while making progress in rescheduling debt to other creditors and to multilateral institutions.
 To support its medium-term program objectives, the government intends to reduce the overall deficit of the non-financial public sector to 1.5 percent of GDP by 1995 and to create an environment conducive to domestic savings and private sector investment.
 The first annual ESAF-supported program runs through June 30, 1993, and is designed to generate real GDP growth of 3.5 percent in 1992 and 4 percent in 1993, and to reduce inflation to 12 percent and 8 percent, respectively. The fiscal deficit will be reduced by further strengthening public enterprise finances, and the external current account deficit is targeted to decline, reflecting higher export earnings due largely to an increase in the volume of both traditional and non-traditional exports.
 Structural reform in the first year of the program will focus on eliminating constraints on private investment -- particularly a lack of secure land ownership and a prohibition against land rental -- and on reform of the financial system. A new foreign investment code recently approved by the National Assembly simplified regulations for new businesses, broadened the range of activities in which foreign investors can participate and eliminated discriminatory foreign investment regulations.
 Since 1990 the government has operated two successful, largely foreign-financed, social safety net programs directed at helping the poor, which provided short-term employment in social infrastructure rehabilitation and launched nutritional programs for poor mothers and young children. These emergency programs are being expanded and developed into permanent assistance schemes; other existing programs in health, nutrition, and water supply are being broadened to improve coverage in marginal rural and urban areas. The housing shortage for low- and middle-income families is also being addressed.
 Honduras is an original member of the IMF, and its quota(B) is SDR 67.8 million (about US$97.48 million). Its outstanding financial obligations to the IMF currently total SDR 74.57 million (about US$107.21 million).
 (A) The ESAF is a concessional IMF lending facility for assisting low-income member countries that are undertaking economic reform programs to strengthen their balance of payments and to improve their growth prospects. Loans under the facility carry an interest rate of 0.5 percent and are repayable over 10 years with a five-and-a-half year grace period.
 (B) A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing and its allocation of SDRs.
 -0- 7/24/92
 /CONTACT: International Monetary Fund, External Relations Department, 202-623-7100/ CO: International Monetary Fund ST: District of Columbia IN: FIN SU:


DC-TW -- DC024 -- 3174 07/24/92 16:54 EDT
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Date:Jul 24, 1992
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